Bank of America (BAC) This just sends a not-so-subtle red flag to bond market investors and stock market investors alike.
In a new Flow Show report, chief equity strategist Michael Harnett The era of thinking “anything but bonds” has arrived and traditional safe trades have failed.
In laying out his brief rationale, he said the first half of the 2020s achieved what he called “bond market humiliation” Long-term government debt has suffered unprecedented damage.
Looking over the longer term, the data supports Hartnett’s view that long-term government bonds have indeed suffered large and unusual losses.
iShares 20+ Year Treasury Bond ETF (a proxy for “long-term bonds”) sold off heavily 31% in 2022 (One of the worst years) The maximum retracement is close to -47.8% From the peak in 2020 to the end of 2025.
So where does the money go when bonds can no longer protect your portfolio?
Well, Bank of America’s answer is broad and in many ways a contrarian view.
Harnett expects the second half of the decade to be favorable to International stocks, emerging markets, commodities and goldA weaker dollar fuels reflation overseas.
Therefore, the artificial intelligence stocks that have attracted much attention in the past three years may give way to small and medium-sized enterprises in the context of strong reshoring trends and industrial reconstruction.
Bank of America’s warning is less about the next big deal and more about the fundamentals of the portfolio, which have clearly changed.
Harnett believes that bonding (shock absorbers) can effectively Their main job failed, Risks forcing investors to rethink the entire stock market.
Harnett believes this rethinking is already underway.
A weaker dollar, stronger commodity prices and reflation outside the U.S. will help International and emerging market stocksotherwise it has lagged behind.
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For perspective, the U.S. dollar index has fallen 9% of its value over the past 12 months and dropped nearly 2% in the past 5 days That’s it, MarketWatch noted.
To look at data on emerging stocks, let’s measure it against a clean metric iShares MSCI Emerging Markets ETF Take a look at how they’re doing compared to the tech-heavy S&P 500.
Throughout 2025, tape performance is as follows.
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MSCI ETF (Emerging Market Equities):+33.98%
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Spy (S&P 500):+17.72%
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MAGS (Magnificent Seven ETF):+22.99%
On top of that, the argument for global reflation is also in the numbers.
Data shows Japan No longer in a deflationary era, Investing.com says headline inflation is 2.1%, Core inflation is 2.4% (both hovering above the Bank of Japan’s targets).
China Slightly more unbalanced, but consumer prices are improving as Consumer prices rose 0.8% and Core CPI rose 1.2%while ex-factory prices are mostly still in deflation. at the same time, Eurozone Nor has it fallen into outright deflation, as inflation is nearing its end 1.9% And the service is still going strong.
When comparing it to today’s stock market, Hartnett looked back to the 1970s, where the setup felt very familiar.
Investors at the time were piling into the Nifty Fifty: dominant blue-chip growth stocks that felt almost invulnerable. So, in essence, investors are willing to pay any price for quality.
However, macroeconomic conditions quickly changed, with rising inflation, government intervention, dollar weakness and valuation compression.
Related: Goldman Sachs quietly adjusts 2026 gold price target
While these businesses survived, their stocks took a beating.
That’s the parallel Harnett is drawing now.
Today’s AI-driven giants have convinced investors that they are exceptional businesses, but extreme concentration leaves the door open for a major correction if the macro backdrop becomes even slightly less supportive.
This is exactly what Pierre-Olivier Gurinchas, chief economist of the International Monetary Fund, said in a recent article I wrote about economic instability.
Let’s be honest, you don’t need to be an active stock market investor to notice how a handful of names like Nvidia and Google drive much of the business news cycle.
A small group of large AI-related companies have led stock market returns over the past few years, and the data shows how skewed the rally has been.
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The gorgeous seven-person group has now opened an account More than 34% of the S&P 500For a handful of stocks, this number is unusually high.
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The top 10 stocks account for nearly 39% of the indexeasily higher than the peak of nearly 27% in the late 1990s.
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poster children e.g. NVIDIAa simple representation of the enthusiasm driven by artificial intelligence, It will surge by about 240% in 2023 and another 170% in 2024.according to Investopedia.
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In 2025 alone, Nvidia will account for nearly 15.5% of the S&P 500’s total gainsThis is a shocking statistic, to say the least.
Inflation, political and policy pressures are effectively changing the overall market backdrop. However, this is not the end of the world, but rather a rotation of leadership as new circumstances arise.
As the numbers show, we’re already seeing this take shape. To put things in perspective, the tech-heavy S&P 500 is up 1% so far this year, lagging the Russell 2000’s 7.5% gain over the same period, according to the Associated Press.
The current leadership of the industry is also not in the technology sector.
Below is the total return (including dividends) performance of the major ETFs representing their respective industries as of January 23, 2026.
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Energy(XLE): Year to date +10.02%
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Material (XLB): Year to date +10.19%
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Consumer Staples (XLP): Year to date +6.73%
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Industrial(XLI): Year to date +5.87%
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Technology (XLK): Year to date +0.78%
Source: totalrealreturns.com
Other Wall Street strategists, including Jeremy SiegelWharton Professor Emeritus and Chief Economist at WisdomTree echoed this sentiment.
In a recent interview with CNBC, Siegel said the long-promised expansion of market leadership appears to be durable, raising questions about the strength of Big Tech’s rebound.
Related: Top analysts revisit Palantir price targets ahead of earnings
This article was originally published by TheStreet on January 24, 2026, and first appeared in the Economics section. Click here to add TheStreet as your preferred source.